# The maximum drawdown

For us, the maximum drawdown is the ultimate key indicator to measure your performance in relation to your risk tolerance.

## Why?

1 Demo: While you qualify for funding, you must double the amount in your Demo Account and may not exceed a maximum drawdown of 30%. If you manage to double the amount but your maximum drawdown is higher than 30% you will not be offered any funding.

2 Live: If you are trading for us in a Live Account with real starting capital, you may exceed the maximum drawdown of 30% but you will receive a lower profitshare.

That's why you should not only understand the drawdown, but also adapt your trading strategies accordingly. As long as you stick to our risk parameters, you can earn a lot of money with our funding!

## What is a drawdown anyway?

A drawdown is the peak-to-trough decline during a specific recorded period of an investment, fund or commodity. The maximum drawdown is the percentage of loss between the peak and the trough of a portfolio in a certain period.

Source: Investopedia

For our calculation, we use the maximum drawdown displayed in percent. The maximum drawdown is a good indication of how willing you are to risk your open positions.

## Four examples

### Example #1: Open positions

You open a long position in an account with USD 10,000. Your equity increases to USD 10,200; the position is doing well. But then the position stops doing well and creates an open book loss of USD 700 at an equity of just USD 9,500. You keep the position open because you believe in your trade analysis. The price starts rising again; your analysis is paying off. However, you record a drawdown while your position is open: the loss difference between the peak in your equity (green, USD 10,200) and the trough (red, USD 9,500) in the period under review is USD 700. Expressed in percent, that's a maximum drawdown of

### 700 x 100 / 10.200 = 6,86

Even if you close this position later with a profit, you will have created a drawdown. This is a very important and often new insight for many traders because even a streak of winning positions produces drawdowns!

The following are three more examples with closed positions:

### Example #2

Your account has been reset to USD 10,000 and you lost 10 positions, each with a value of USD 500. This means that your account balance has fallen by half to USD 5,000 and the amount you lost is also USD 5,000. This would be a maximum drawdown of exactly 50%:

### Example #3

Your account has been reset to USD 10,000 and you now have a balance of USD 12,000 thanks to a winning position. You then have a losing streak and your balance falls to USD 10,000 again. Your maximum drawdown is now 16.67%:

### Example #4

You have USD 10,000 in your account and lose USD 1,000 with the first positions. You then trade your account until it reaches the stately sum of USD 16,000. You later make a loss of USD 1,500. How high was your maximum drawdown in this scenario?

On the one hand, you lost USD 1,000 when your highest balance was USD 10,000 (starting capital). This corresponds to a drawdown of 10%, which is the maximum drawdown at this point in time. You then lost USD 1,500 but your highest balance was USD 16,000. This means that the maximum drawdown is less, namely 9.375%. The total maximum drawdown for this account was 10%, namely when you started trading:

## What have you learnt from these examples?

In addition to the purely mathematical calculation, you should have learnt that high profits and even whole streaks without loss positions produce drawdowns! And the calculation with open positions shows more clearly how willing a trader is to risk all or what's left of his or her equity.

We pay a lot of attention to this and this is also why traders and investors risk only a few percentage points of their available capital and quickly close their loss positions.

You can view your maximum drawdown at any time in your MyPerformance tool. Drawdowns are also displayed on your Guidants platform as well as in the public top trader rankings on our website. If there is anything you do not understand or you have questions about the drawdown, do not hesitate to contact our support team: